Gold futures distance from seven-week low on signs of increasing physical demand

Gold extended an advance from the lowest level in seven weeks amid bets that physical demand will increase, while assets in the SPDR Gold Trust, the biggest bullion-backed ETF, remained steady yesterday.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in June traded at $1 293.20 an ounce by 06:48 GMT, adding 0.19% for the day. Prices shifted in a tight daily range between $1 294.20 an ounce and $1 290.60 an ounce. On April 1, gold prices touched $1 278.10 an ounce, the weakest level since February 11.

Bullion has lost 3.1% in March as the US economy expanded at a faster-than-expected pace and after Federal Reserve Chair Janet Yellen said the central bank’s bond-buying program may be brought to an end this fall, with borrowing costs starting to rise by mid-2015. The Federal Reserve trimmed its monthly bond-buying program by $10 billion at the last three meetings.

However, the precious metal rose 7 percent in the first quarter as demand for haven assets was boosted amid a rout in emerging markets and Russia’s annexation of Crimea, which left Russia and the West involved in their worst conflict since the end of the Cold War.

Australia & New Zealand Banking Group Ltd.s physical demand gauge accelerated toward the end of last month, according to a note by analysts working for the bank.

In India, which was overtaken by China as the worlds top consumer of the precious metal after restricting imports, the Reserve Bank of India Governor Raghuram Rajan said yesterday slow and steady steps were needed to remove the curbs.

“Physical demand is good, not exceptional, so it’s difficult to see the upward momentum being sustained,” said Zhu Siquan, an analyst at GF Futures Co., a unit of the Guangzhou-based company that bought Natixis Commodity Markets Ltd., cited by Bloomberg. “India relaxing import restrictions could potentially be positive for physical demand there. Investors should remain sidelined before the payrolls data.”

Fed stimulus outlook

Bullion prices were pressured last month, capping the first monthly drop in 2014, as the Federal Reserve trimmed its bond-buying program at the last three meetings, citing signs of improvement in the economy.

The US private sector added 191 000 workers last month after February’s number was revised up by 39 000 to 178 000, a report by Automatic Data Processing Inc. (ADP), showed yesterday. However, analysts’ forecasts called for a 195 000 gain in March.

The ADP report usually comes out two days before the official employment report by the Bureau of Labor Statistics (BLS), thus, providing clues over the tendency in nation’s non-farming sector. The government report scheduled to be released tomorrow may show private payrolls rose by 200 000 last month, according to the median experts’ forecast.

Yesterday, Fed President for St. Louis James Bullard said that if inflation slows further, decreasing the pace of Fed tapering cannot be ruled out, even though he didnt expect that to happen.

However, bullion drew support after Federal Reserve Chair Janet Yellen said on March 31 that the central bank needed to do more to fight against unemployment, because keeping interest rates near zero for more than five years and swelling its balance sheet with asset purchases seemed not to be enough. She also added that the US economy still needed monetary stimulus for “some time” and that most of the Fed officials shared the same opinion.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, were unchanged yesterday, after dropping to 810.98 metric tons on April 1, the weakest level since March 7. Holdings in the fund are up approximately 1% this year after it lost 41% of its assets in 2013 that wiped almost $42 billion in value. A total of 553 tons has been withdrawn last year.